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Tenant makes major improvements to a rented property.

If a landlord rents a commercial property to a tenant and the tenant makes signifcant improvements to the property (e.g. extensions) thereby increasing the buildings total value how should this be treated in the accounts of both businesses? FYI - Market value of the building has been doubled by the improvements

WOuld costs of the improvements simply be recorded as leashold improvement in the tenants accounts  and subject to depreciation / AIA / capital allowances?

Of course the improvements has a significant effect on value of the property and hence when revalued in the landlords accounts will show a profit?

Does the fact the landlord and tenant are connected make any difference?

Thanks for any assistance


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30th May 2012 12:56

This is what is known as a "nothing"

The tenant can get next to no tax relief for this expenditure because it is part of the setting. Capital allowances may be available in respect of the water supply (including sinks and toilets etc), electricity supply, heating etc but that's it.

The landlord can get no tax relief for the expenditure because he hasn't incuured any costs.


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By DMGbus
30th May 2012 13:19

PIM1212 - deemed lease premium

Where a tenant has a contractual obligation to improve a landlords premises then a deemed lease premium can arise.  Never come across it in practice, so although I'm aware of the issue I have not studied the consequences for the tenant.   (in some circumstances a lease premium paid to a landlord is tax deductible under a special formula).

Here's some HMRC's guidance on this matter:


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